Bahrain’s slow bleed of reckless, abusive governance

Unrest weighs on Bahrain economy’s recovery
By Praveen Menon – 1 February, 2012 – Reuters

MANAMA (Reuters) – Bahrain’s economy is rebounding on the back of heavy government spending and support from its neighbors, but a full recovery may be out of reach if anti-government protests continue.

A year after mostly Shi’ite demonstrators launched protests against Bahrain’s Sunni Muslim rulers, demanding an end to sectarian discrimination and more say in government, authorities are seeking to quell discontent by doling out benefits to citizens: higher salaries, housing and better infrastructure.

But the spending has had only limited success in reviving the island kingdom’s reputation as a regional banking, trading and Islamic finance hub, as unrest continues on the outskirts of the capital Manama.

“The damage to the economy is somewhat permanent,” said Michael Stephens, researcher at the Doha-based Royal United Services Institute for Defence and Security Studies.

“Bahrain has been a financial hub and has all legislations in place for businesses. However, political instability continues and this is unlikely to change anytime soon. I don’t think the government can encourage business in Manama without solving the political situation.”

Economic conditions in Bahrain have improved considerably since the first quarter of 2011, when gross domestic product shrank 1.3 percent because of street violence that temporarily closed businesses and prompted the evacuation of foreigners. GDP grew 2.2 percent quarter-on-quarter between July and September, the most recent period for which data is available.

But politics continue to overhang the economy of 1.3 million people. The Bahrain Air Show in January, the first big international event since the unrest, was marred by protesters who tried to disrupt it by burning tires and organizing rallies.

More protests are expected before the Bahrain Formula One Championship in April, which the government hopes will show a climate of normalcy. Another possible focus of opposition activity is February 14, the first anniversary of the uprising.

The latest GDP data underlined how political uncertainty is distorting the economy. The output of the oil and gas sector climbed an inflation-adjusted 3.5 percent from a year earlier in the third quarter on the back of high oil prices. But the real estate sector was down 5.6 percent, as investors stayed cautious, and the hotel and restaurant sector fell 8.7 percent, suggesting business travel and tourism continued to suffer.

“Most of the real economy was still in contraction by the third quarter of 2011,” said Nancy Fahim, a Standard Chartered economist. “While recovery is taking place, sporadic political events in 2012 are possible and would present downside risks to growth.”

The government says Bahrain continues to attract new foreign investment; in December the central bank said it had granted in-principle approvals for two Geneva-based investment houses and a foreign reinsurance company to set up offices in the country. …more